Thursday, April 22, 2010

Suggestions for a NEW Film Tax Credit Program

A little while back I posted a blog on here about "What is your wishlist" concerning the film tax credit program. I promised I would post what suggestions I was going to send to Senator Dotzler and his study group as they look at the film credits this summer and today is the day. What Senator Dotzler hopes to do is to introduce a new bill in the 2011 session that would replace the present flawed and suspended program. I'd assume it would keep only the elements that worked and I'd hope that it would not only fix what is wrong with the present program but would offer improvements. As I've said before, we aren't going to get a second chance, so let's get it right this time. I've spent a bit of time formulating my suggestions for this very reason.

This (along with copies of the original materials with notes written on them) is what I'm going to send to Senator Dotzler and his study group:


Dear Senator Dotzler and members of the Film Tax Credit study group,

As I understand it, you are working on a new Film Tax Credit bill which would supersede the present one if it is passed in the new legislative session in 2011. I do realize the importance of getting through the November election and getting past the trials that came about as a result of abuse of our present Film Tax Credit program. Timing is very important.

Ever since Governor Culver's freeze of the program in September of 2009, I've been following what has been going on and thinking about solutions. The following suggestions are what I've come up with after talking to others and considering the problems myself. Please understand in presenting these suggestions I'm only representing myself and not any of the various film organizations in the state or any national interests. These simply are my ideas of what I think might work and make this, once and for all, an effective program. (It might not be a bad idea to see what has worked in other states too.)

The following are my suggestions:

I think, to begin with, that we need to rethink what our ultimate objective should be with the film program. There has been so much made by detractors of the program of tax credits being a “race to the bottom” that we need to look at what this program really means. In its present form our program would certainly seem to fit this idea . It's been pointed out that Iowa having the best incentives is only temporary until another state tops us. The present objective has been to simply attract Hollywood productions to the state in order for them to spend money here and hire a few Iowans. In effect it's been to make our state an extension of their backlot.

I would suggest a new farther sighted objective. I think we should approach this as a means to build a permanent film industry inside our borders. I think we should expand the training beyond the lower level support jobs that were encouraged and look toward building a fuller infrastructure of film related businesses including those involved with post-productions and beyond. Our ultimate goal should be a self-sustaining film industry that can keep going long after outside productions have left and to make it possible to gradually phase out the tax credits so that this industry can contribute to the state's budget through taxes.


One thing that could be argued about the Iowa Film Office is that Tom Wheeler did a very good job at the job he was originally hired for – promoting Iowa as a place for productions to shoot and acting as a liaison once they were here. The trouble started when he was expected to do jobs that he was not qualified to do. He did not have a law degree so it was inadvisable that he be expected to be an expert in legal matters and he was not a motion picture accountant so it was not surprising that he was not the person to go over the books of television and motion picture productions using the Film Tax Credit program.

Politically it is unlikely that he could be hired back to run the Film Office but there are things that could be done to eliminate, or at least minimize, the possibility of the kinds of problems we experienced. I would suggest we separate the original duties of the Film Office from the responsibilities that were added with the tax credits. Additional staff should be hired to process the applications and to process the receipts to make sure that the expenses claimed are qualifying expenses. This staff should be under the oversight of a different department than the Iowa Film Office (the Department of Revenue would be the obvious choice). Furthermore there should be a built-in auditing component to this to double-check the work done. The people hired should know about the norms for the film industry as far as prices and what would be normal production expenses. There should be someone who knows about tax credits – especially film tax credits and any legal questions that aren't obvious should be referred to the Attorney General's Office. Putting the two parts of the film program under separate jurisdictions would prevent undue influence over the awarding of tax credits and keep the Film Office doing what it does best.


Before Governor Culver froze the Film Tax Credit program in September of 2009 a problem with the program was that most prospective Iowa film workers were not aware of productions needing cast and crew until it was too late. The titles and contact information of approved productions was kept confidential and most job seekers could only find out through word-of-mouth or news stories. I would like to suggest then that the titles of films that have applied and have been approved should be made public as soon as the information is available and that the Iowa Film Office website acts as a clearing house for this information. The information would include the title of the project and all of the relevant contacts so that the producers are not inundated with individual requests. I think that the Iowa Film Office should be the source of this information because it would be in the best position to be an honest broker. No film organizations, whether Iowa based or national, should be considered for the dispensing of this information because of the possibility of selectively withholding this information for the benefit of their own members. Likewise, a registry of Iowa film workers should be under the Film Office's control in order to be fair to all Iowans.


When qualifying for tax credits only the portions of a production's budget (specific line items) directly connected to film credits should be open to public scrutiny. The total budget of a film should be a matter for the producers. Instead of a minimum qualifying budget, Iowa should instead require a minimum expenditure of qualifying items. If this threshold is met, then the production would be eligible for tax credits as long as the receipts are in order and the items qualify. Items not qualifying would be excluded from the total. Under the present program having the whole budget subject to public scrutiny has been a bone of contention for producers. This is because it makes public items that have nothing to do with the tax credits and breaks confidentiality agreements with participants. Only expenditures that affect tax payer dollars should be open and transparent. The matter of how much of the budget to make public would affect how much the producers would avail themselves of the tax credits. They would have to balance that out for themselves.


The program should be structured so that films of most budget levels could qualify (low, medium, high). Care should be taken so that a large budget production could not suck up all the resources from other films and that all films have a chance, if requirements are met. At least half the budget should be raised before being considered and an adequate time to raise this money should be built into the program.


There should be a more orderly application process. Something should be done (I'm not sure yet what) to eliminate the bum's rush that the process had become. The idea of steps to complete was a good one but the process needs to be re-examined nonetheless. Make sure receipts are definitely turned in and withhold tax credits if they are not. The loose and easy way the program was run created the problems we have now.


All Film Productions should have to be bonded and have funds in reserve to meet payroll. The awarding of film tax credits would be contingent on meeting payroll obligations. There was at least one film that had qualified for tax credits that still hasn't paid the cast and crew that worked on it and instances of workers having to wait to get paid because of the producers waiting for tax credits. This is certainly not the way we want business conducted in Iowa.


No Credits should be awarded for "Above the Line" Expenses. Above the Line Expenses – that is, the principals of any given (director, producer, lead actors, etc.) are among the most expensive parts of a production and it should be the producers, not tax payers, who bear the risk of recovering the cost of these contracts.


No more "Pass-Through" Companies - The idea of Iowa-based companies being created to purchase or rent items out of state for the purpose of qualifying for tax credits rightly looked like a shell game to tax payers because that is precisely what it was. Get rid of the provision. It doesn't encourage film related businesses to locate here or originate here. It merely provides a dodge from buying and renting film related equipment and supplies from Iowa vendors. I don't know who made this suggestion in the formation of the bill but it was a bad idea from the start.


Credits should only be awarded for expenses incurred inside Iowa borders. Certain pre-production expenses would qualify such as location scouting if it met the requirements. Post-production expenses would qualify if the work was done by Iowa companies. Distribution and marketing expenses would not qualify unless we expand the film tax credits to include Iowa-based entities doing this work.


Only equipment purchased in Iowa and that remains in Iowa should qualify for credits. Anything that the production should already own would not qualify and all uses would have to be proven to be related to the production of the film. Rentals also would have to be done with Iowa based companies to qualify as well as purchase of supplies and expendables.


The percentage of tax credits awarded should reflect the percentage of Iowans employed. Workers would have to provide proof of residency in order to affect the amount of credits awarded. In addition to this, no tax credits should be awarded for any film until Iowa film workers and Iowa vendors have been paid. This would encourage a higher percentage of Iowans being employed on a project by producers.


I would like to suggest that there be no Iowa Income Tax exemption for film workers. Potential workers hardly need any incentive to get into the film business. The work is well paying and there is a perceived aura of glamour (although the actual work is different). The most crucial factor affecting whether Iowans leave their present jobs for employment in the movies is whether there is enough work to sustain a career. Exemptions on state income tax does not affect this at all and is not needed. In fact it holds back unnecessarily the benefits of films being shot in Iowa from the state treasury. I can't speak for others but I would expect that most would be willing to forgo the income tax exemption if it meant that the program could move forward and jobs could be created. Again, I have no idea who suggested this particular idea for the program but it is a flawed concept.


All approved productions should have locked in tax credit contracts. All contracts should have a maximum amount of qualifying expenses set with amounts over this totally the producer's responsibility. No amending. If the maximum set is not sufficient, producers should have to apply for a new contract from scratch with the application of such made public.


Motor vehicles used in productions would have to meet requirements in order to qualify for tax credits. This was very vague in the original film tax credit incentive bill. No purchased vehicle would be eligible unless it was an expendable item (destroyed as part of the making of the film) or it was for use in a permanent Iowa film business. A permanent Iowa film business would be one with a location either purchased within the state or with at least a five year lease in an Iowa location and being based in Iowa. Otherwise only leased and rented vehicles used specifically for the needs of the production would qualify.


No credits should be awarded for anything where money does not change hands. The whole idea of the program is to have productions add to the Iowa economy, isn't it?


No credits should ever be given for expenses incurred in selling the awarded tax credits. The tax credits are a benefit to the producers and it should be their expense, not the tax payers, to sell them to other companies.


No tax credits should be awarded until all relevant receipts have been turned in and reviewed. This might have already been inferred above but it bears repeating.


The program should be reviewed every year. It should be obvious by now that the program as it stands right now was not perfect. No matter how carefully a new program is designed it is unlikely that every kink will be worked out and every loophole closed if and when it is reinstated. It is also not clear if the staffing will match the needs for a given time period. For that reason I suggest reviewing the program each year and making adjustments as needed so that the debacle that just happened can never happen again.


Lastly I'd like to suggest that you give the Film Tax Credit program at Least 5 Years to work. Lots of people seemed very quick on the draw to scuttle the program and we have little idea how well it actually worked. I think it should be given at least 5 years to prove itself. Unlike how something like farm subsidies have been handled (which, by the way, has continued long past when they were needed), I think the tax incentives should be designed with the idea in mind that eventually they should be reduced and then eliminated.


The film tax incentive program should be thought of as a form of scaffolding for this bridge to potential prosperity that is this infant Iowa film industry. Right now it needs the support in order to be built and to gain strength but eventually it should be expected to stand on its own. It should remain standing and be self-supporting even if productions from outside the state cease to shoot here.


-David Thrasher

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